Venture capital activity in Israel, the US, Europe and China is set to hit a five-year high of $32 billion in 2006 as a result of robust levels of liquidity and strong merger and acquisition activity, According to a global year-end analysis by Dow Jones VentureOne and Ernst & Young.
"The new wave of venture capital investments around the globe, particularly at the early stage, has been driven by the increasing demand for innovation in sectors such as Web 2.0, cleantech and biotechnology in both mature and emerging markets, as wells as the positive exit environment and the end of the fund raising cycle in most markets," said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group. "Venture capitalists are responding to the need of large multinationals to get closer to the innovation pipeline, whether through partnerships with promising start-ups or acquisitions of innovative companies."
The report indicated that venture capital investment after the third quarter already had reached a total of $25.3b., comprised of around $1b. in Israel, $1.2b. in China, $3.7b. in Europe and $19.4b. in the US.
Global venture capital fund raising at $24.2b., however, was slower than last year, when it topped $33.1b. due to particularly strong private equity funds in Europe.
Key factors for the venture capital activity in 2006 included strong merger and acquisition activity for venture-backed companies in Israel and the US, the report said, with Israel posting 32 venture-backed M&As in the third quarter, while the US posted 311 - both up from last year's levels. In addition, the median amount being paid for those companies, which was $50 million in both Israel and the US, topped 2005 amounts in both countries.
Furthermore, 2006 was a year of relatively steady venture-backed initial public offering (IPO) activity around the globe. In particular in Europe, where 56 IPOs were completed through the third quarter, making it likely that Europe will complete the most venture-backed IPOs this year since 2000. This development will potentially free up venture capital portfolios for further investment.
Still the size of IPOs, particularly in Europe, are at much smaller levels with only $1.2b. cumulative raised in the European public offerings so far. The US has had some success in the public markets as well, with 37 IPOs so far this year and $2.47b. raised, putting it on path to exceed last year's level.
The survey showed that among the big trends in the venture capital market in 2006 was the considerable attention being focused on clean technology.
In the US alone, the report said, $585.6m. has been invested to 60 companies focused on the area so far this year, which is more that 30% more than was invested in all of 2005. European investment in cleantech is already 26% higher than total investment in all of 2005, which reached $102.4m.
China venture capital investment is following this trend, with nine deals and $74m. invested to date this year.